How Staking Rewards Actually Work

Where a staking reward actually comes from

A staking reward is generally funded from two sources: newly issued tokens the protocol creates as an incentive for validators, and transaction fees paid by users. The combined rate is usually expressed as an annualized percentage, but that advertised rate is a starting point, not the amount a staker actually receives.

What reduces the advertised rate

• Validator commission: delegating to a validator (rather than running one yourself) means a percentage of the reward goes to that validator before the rest reaches you.
• Compounding frequency: how often rewards are actually paid out and restaked changes the real annualized return, even at the same nominal rate.
• Downtime and slashing: a validator that goes offline or breaks protocol rules can be penalized, which flows through to anyone who delegated to it.

The unbonding period is a real cost, not a formality

Most proof-of-stake networks require a waiting period — an unbonding period — between requesting to unstake and actually regaining control of the tokens. During that window, the tokens typically keep earning nothing, which is a real opportunity cost that doesn't show up in the advertised APY at all.

What to remember

• Staking rewards are funded by new token issuance and transaction fees, expressed as an annualized rate.
• Validator commission, compounding frequency, and validator downtime/slashing all reduce the real reward below the advertised rate.
• The unbonding period is a real, often-overlooked opportunity cost, not just a waiting-period formality.
• Comparing two staking options means comparing net, after-commission, after-unbonding outcomes — not just the headline APY.